Abdul Rahim Aki

v.
[1995] 2 MLRA Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. 63

ABDUL RAHIM AKI

v.
KRUBONG INDUSTRIAL PARK (MELAKA) SDN.
BHD. & ORS.

Court Of Appeal, Kuala Lumpur

Gopal Sri Ram, Siti Norma Bte Yaakob, Abu Mansor Ali JJCA
[Civil Appeal No. M-01-22-95]
16 May 1995

JUDGMENT
Gopal Sri Ram JCA:
The appellant before us is a shareholder of Tunas Murni Sdn. Bhd. ("Tunas
Murni"). Initially, he commenced an action against the respondents using Tunas
Murni's name as plaintiff. That action was not supported by a majority of the
board of directors. The respondents before us (defendants in that earlier suit)
applied to strike out the action. They succeeded. The appellant then brought a
second action by originating summons. He claimed that it was a derivative action.
He joined the company as a co-defendant and claimed a whole range of
declaratory relief. In the environment of company law it is commonly called a
minority shareholder's action. We will say something more about such actions
later in this judgment.
The instant respondents resisted the second action. They argued, inter alia , that it
was in substance not a derivative action at all because it lacked the elements of
such an action. The learned Judicial Commissioner dismissed the action solely on
the ground that common law fraud had not been established and that consequently
the title of the first respondent was indefeasible. It is against this decision that the
present appeal has been brought. After hearing Counsel for the appellant we did
not consider it necessary to trouble Counsel for the respondents for a reply. We
agreed with Counsel for the appellant that the Judicial Commissioner arrived at his
decision for the wrong reasons. But we upheld his order nevertheless because we
formed the view that his ultimate decision was correct. So that res judicata , should
not be even suggested, we gave the appellant liberty to commence a fresh action by
writ. The reasons for our decision now follow.
At the outset, we wish to make it clear that because of the orders we made on this
appeal, it is desirable that we say as little as possible about the facts or the
substantial merits of the case. This is to avoid our remarks being misunderstood as
amounting to the pronouncement of a concluded view upon these matters. They
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are certainly not intended to have that effect. However, in order to appreciate the
true legal position it is necessary to allude to some of the salient facts.
As earlier observed, the appellant is a shareholder of Tunas Murni. He owns 46.7%
of its shares. There are two other shareholders. They are the second respondent
who owns 15.9% and one George Thomas ("Thomas") who owns 37.4%. At
present the appellant and Thomas are the only directors of the board of Tunas
Murni. The second respondent was at one time a member of the board but
subsequently resigned.
At all material times, Tunas Murni was the registered proprietor of three pieces of
land which it had purchased from the previous registered proprietor. These lands
stand at the heart of the present dispute.
On 8 June 1993, an agreement was entered into between Tunas Murni and the first
respondent under the terms of which the former appointed the latter to arrange for
the subdivision and development of the lands in question. On the same date, it
executed an irrevocable power of attorney in favour of the first respondent. Later,
the lands were transferred to the first respondent.
As earlier observed, the appellant in his summons asked for several declarations
and orders which in essence attack the aforesaid transfer. The complaints range
from defeasibility of the first respondent's registered title to serious allegations of
impropriety directed against the first, second and third respondents as well as
Thomas. Despite all this, Thomas was not added as a party to the action. On
appeal, Tunas Murni was not cited as a respondent. An eleventh hour attempt to
add it as a respondent to the appeal was vigorously opposed by the respondents.
Whether the addition ought to be permitted was a matter within our discretion.
Taking into account all the relevant circumstances, we formed the view that the
motion ought to be refused.
There was some delay in making the application for which no satisfactory
explanation was given. Also, allowing the application would have meant granting
the appellant leave to appeal against Tunas Murni out of time, an adjournment of
the appeal to enable service of the amended notice of appeal to be effected on all
parties and the filing and service of fresh records of appeal. The factors against the
grant of the orders sought by the appellant in his motion to this Court far
outweighed those operating in favour of the grant.
In our judgment, the failure to add Thomas as a co-defendant to the main action
and the failure to add Tunas Murni as a respondent to the appeal were serious
impediments that stood in the way of the appellant's success before this Court. In
order to overcome the difficulty in which he found himself, the appellant relied on
the decision of the Supreme Court in Alor Janggus Soon Seng Trading Sdn. Bhd. &
Ors. V. Sey Hoe Sdn. Bhd. & Ors [1993] 5 MLRH 9; [1995] 1 MLJ 241; [1995] 1 CLJ
 Abdul Rahim Aki
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[1995] 2 MLRA Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. 65

461; [1995] 1 AMR 549 . But a close examination of that case shows that the
factual matrix upon which that decision was based is very different from that
obtaining in the present appeal. Thus, unlike Alor Janggus, the director who was
not joined as a party is one whose conduct has been assailed on the footing that he
had breached the trust and confidence reposed in him as a fiduciary. The success or
failure of the appellant's case depends very much upon whether he can make out
the case alleged against Thomas.
We think that the answer to the appellant's contention that the action is properly
constituted and may proceed notwithstanding the non-joinder of the alleged
defalcating director is to be found in the following passage in the speech of
Viscount Maugham in London Passenger Transport Board v. Moscrop [1942] AC 332,
345:
I also think it desirable to mention the point as to parties in cases where a
declaration is sought. The present appellants were not directly prejudiced by the
declaration and it might even have been thought to be an advantage to them to
submit to the declaration, but, on the other hand, the persons really interested were
not before the Court, for not a single member of the Transport Union was, nor was
that union itself, joined as a defendant in
the action. It is true that in their absence they were not strictly bound by the
declaration, but the Courts have always recognized that persons interested are or
may be indirectly prejudiced by a declaration made by the Court in their absence,
and that except in very special circumstances, all persons interested should be
made parties, whether by representation orders or otherwise before a
declaration by its terms affecting their rights is made. In the Chancery Division,
in which this case started, the rule would seem to be almost invariable, and the
well-established practice in actions by shareholders and debenture holders may be
mentioned as instances of the rule.
With the greatest respect for the Court of Appeal, I think that the amended
declaration pronounced by that Court, even if the section were applicable, ought
not to have been made. (Emphasis added.)
These words though spoken in the context of declaratory relief are of general
application.
As far as the instant appeal is concerned, we need say no more than that the very
special circumstances spoken of by Viscount Maugham are absent in the present
case. Consequently, we are unable to accede to the submission of Counsel in this
respect.
Now, when he began his argument on the appeal, Counsel for the appellant
informed us that this matter had commenced as a rather simple summons for
construction of a power of attorney. Somewhere along the way, he said, it had
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ballooned into an action by a minority shareholder of a company. But an

examination of the record shows that it was the appellant who seems to have put
the question in issue in his written submissions filed in support of the summons. In
consequence, it would appear that he had opened a door through which the
respondents drove a coach and four. There was, in reply to his argument,
addressed a whole host of submissions touching upon the quantum of proof
required under the fraud exception contained in s. 340 of the National Land Code
1965 and the ingredients that go to make up a derivative action. The nett result was
that in the cloud of dust that the ingenuity of Counsel had created, all concerned,
including the Court, lost sight of the proverbial wood from the trees. If the learned
Judicial Commissioner had kept in mind the relevant principles applicable to the
case before him, he would not have succumbed to the error of dealing with the
dispute as a case requiring the proof of actual fraud for the displacement of a
registered title.
But these matters aside, and without going into the matter in any great detail, it
suffices for us to say that the affidavits delivered in the Court below disclose
serious disputes of fact on all material issues raised by the appellant, including the
nature of the entire transaction, its aim and purpose. And it emerged during
argument that the essence of the appellant's complaint turned upon alleged
breaches of the fiduciary duty owed to the company by the first and second
respondents and by Thomas.
If, as submitted by Counsel, the first respondent, in breach of trust, is exploiting the
lands in question and reaping huge profits therefrom; that this has been made
possible by the acts of the second respondent and Thomas as accessories to that
breach; that these profits belong in equity to Tunas Murni, then, it is for the
appellant to pursue the appropriate remedy. In this context, it is sufficient for us to
refer to the decision of the High Court of Australia in Hospital Products Ltd. v. United
States Surgical Corporation [1984] 55 ALR 417, 462; [1984] 156 CLR 41, 107 and
that of the Privy Council in Royal Brunei Airlines Sdn. Bhd. V. Tan Kok Ming Philip
[1995] 2 MLRA 311; [1995] 3 MLJ 74; [1996] 2 CLJ 380 . In the former case, the
following passages in the dissenting judgment of Mason J ([1984] 55 ALR at page
462; [1984] 156 CLR at page 107) are of particular relevance:
Relief for Breach of Fiduciary Duty
(a) General Principle Governing Liability to Account
The principle, accepted by the Court below, is that the fiduciary cannot be
permitted to retain a profit or benefit which he has obtained by reason of his breach
of fiduciary duty ( Consul Development (132 CLR) at 393; Queensland Mines (18
ALR) at 4; (52 ALJR) at 401). A fiduciary is liable to account for a profit or benefit
if it was obtained (1) in circumstances where there was a conflict, or possible
conflict of interest and duty, or (2) by reason of the fiduciary position or by reason
 Abdul Rahim Aki
v.
[1995] 2 MLRA Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. 67

of the fiduciary taking advantage of opportunity or knowledge which he derived in

consequence of his occupation of the fiduciary position.
(b) Constructive Trust
Any profit or benefit obtained by a fiduciary in either of the two situations already
described is held by him as a constructive trustee ( Keith Henry & Co Pty Ltd v. Stuart
Walker & Co Pty Ltd [1958] 100 CLR 342 at 350). Neither principle nor authority
provide any support for the proposition that relief by way of constructive trust is
available only in the case where a profit or benefit obtained by the fiduciary was
one which it was an incident of his duty to obtain for the person to whom he owed
the fiduciary duty. Once it is established that the fiduciary is liable to account for a
profit or benefit which he has obtained there can be no objection to his being held
to account as a constructive trustee of that profit or benefit. It can make no
difference that it was not his duty to obtain the profit or benefit for the person to
whom the duty was owed. What is important is that the advantage has accrued to
him in breach of his fiduciary duty or by his misuse of his fiduciary position.
The consequence is that he must account for it and in equity the appropriate
remedy is by means of a constructive trust.
We hasten to add that our remarks upon this part of the case are not for a moment
to be taken as stating that an action mounted on the suggested basis will succeed.
All we wish to say is that the facts as alleged in the affidavits, if true, do not
support the cause of action presently relied upon by the appellant.
The procedural obstacles we spoke of earlier and the view we take of the erroneous
cause of action pursued by the appellant, namely, the reconveyance of the lands to
Tunas Murni constitute sufficient grounds for the dismissal of the appeal.
Unfortunately, as earlier observed, there are some passages in the judgment of the
learned Judicial Commissioner which, if left uncommented upon, may lead one to
believe that we agree with his statement of the law upon the subject of minority
shareholders' actions. This is certainly not the case and we owe it to the efforts of
Counsel for both sides to restate the law governing such actions.
We begin with the rule in Foss v. Harbottle [1843] 67 ER 189. The rule has two
limbs. The first limb of the rule - and the present appeal has nothing to do with its
application - is that a Court will not interfere with the internal workings of a
corporation upon a matter which is capable of being ratified by a majority of
shareholders present and voting at a general meeting of the company. The content
of the first limb, although it derives its name from the case just cited, in truth finds
its origins in the earlier decision in Mozley v. Alston [1847] 41 ER 833. The modern
restatement of the rule is to be found in the judgment of Harman LJ in Bamford v.
Bamford [1970] Ch. 212.
The second limb of the rule is of much wider purport and is universal in its
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application. It is based upon the doctrine that only he who has been injured may
sue. Translated into company law, the proposition may be stated thus. If a wrong
has been done to a company, then it is the company which is the proper plaintiff in
an action brought to redress the injury. An individual shareholder or even a group
of shareholders forming a minority on the floor of a general meeting of the
company have no locus standi to bring an action to remedy a wrong done to a
company. See Prudential Assurance Co. Ltd. v. Newman Industries Ltd. (No. 2) [1982]
Ch. 204.
Perhaps the clearest statement of the rule is to be found in the judgment of Jenkins
LJ in Edwards v. Halliwell [1950] 2 All ER 1064, 1066:
The rule in Foss v. Harbottle , as I understand it, comes to no more than this. First,
the proper plaintiff in an action in respect of a wrong alleged to be done to a
company or association of persons is prima facie the company or the association of
persons itself.
Secondly, where the alleged wrong is a transaction which might be made binding
on the company or association and on all its members by a simple majority of the
members, no individual member of the company is allowed to maintain an action
in respect of that matter for the simple reason that, if a mere majority of the
members of the company or association is in favour of what has been done, then
cadit quaestio .
There are several exceptions to the rule in Foss v. Harbottle (supra) , both as a result
of case law and through the intervention of Parliament. For present purposes, there
are two exceptions that call for detailed discussion. We will refer to these later in
this judgment.
The several exceptions to the rule in Foss v. Harbottle that are the product of case
law appear in the illuminating judgment of Edgar Joseph Jr. J (now FCJ) in Tan
Guan Eng & Anor. V. Ng Kweng Hee & Ors [1991] 3 MLRH 1; [1992] 1 MLJ 487;
[1991] 4 CLJ (Rep) 74 . It is an important decision in the field of company law and
in it there are set out several propositions that clarify the position in an area of the
law that is not altogether free from difficulty. The exceptions referred to by his
Lordship in that case are as follows:
(1) Ultra vires acts: 'in cases where the acts complained of are wholly ultra vires the
company or association the rule has no application because there is no question of
the transaction being confirmed by any majority'.
(2) Fraud on the minority: 'where what has been done amounts to what is generally
called in these cases as a fraud on the minority and the wrongdoers are themselves
in control of the company, the rule is relaxed in favour of the aggrieved minority
who are allowed to bring what is known as 'a minority shareholders' action on
behalf of themselves and all others'.
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[1995] 2 MLRA Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. 69

(3) Special majorities: 'an individual member [is not] prevented from suing if the
matter ... [is] one which could validly be done or sanctioned, not by a simple
majority of the members ... but only by some special majority'.
(4) Personal rights: Where 'the personal and individual rights of members of [the
plaintiffs] have been invaded', the rule 'has no application at all'.
(5) When the justice of the case requires it, though this has been doubted by the
English Court of Appeal in Prudential Assurance Co. Ltd. v. Newman Industries (No.
2).
For completeness, we refer to the statutory exception. This is to be found in the far
reaching and extremely beneficial remedy housed in s. 181 of the Companies Act
1965. It may, on reflection, be inaccurate to refer to it as an exception of the rule
now under consideration. In truth it is an abrogation of the rule itself in those
circumstances to which the section applies.
We now turn to consider the one exception with which this case is concerned. It is
the derivative action; an ingenious procedural device created by Court of equity by
which the rule of judicial non-interference is overcome. It is based upon the
premise that the company which has been wronged is unable to sue because the
wrongdoers are themselves in control of its decision making organs and will not,
for that reason, permit an action to be brought in its name. In these circumstances,
a minority shareholder may bring an action on behalf of himself and all the other
shareholders of the company, other than the defendants. The wrongdoers must be
cited as defendants. So too must the company. The title to the action must reflect
that the suit is being brought in a representative capacity. The statement of claim or
other pleading filed in support of the originating process must disclose that it is a
derivative action and recite the facts that make it so. Further, there must be an
express statement in the pleading that the action is being brought for the benefit of
the company named as a defendant. An action that does not meet these
requirements is liable to be struck out as being frivolous and vexatious.
The juridical basis upon which the Court entertains such an action is that the
majority who have either de facto or de jure control of the company have by
commission or omission committed what is described as "a fraud upon a
minority". It is the second category of case mentioned by Edgar Joseph Jr. J in Tan
Guan Eng (supra) . The principle was stated by James LJ in MacDougall v. Gardiner
[1875] 1 Ch. D 13, 21 where he said:
I think it is of the utmost importance in all these companies that the rule which is
well known in this Court as the rule in Mozley v. Alston and Lord v. Copper Miners'
Company and Foss v. Harbottle should be always adhered to; that is to say, that
nothing connected with internal disputes between the shareholders is to be
made the subject of a bill by some one shareholder on behalf of himself and
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others, unless there be something illegal, oppressive, or fraudulent - unless there

is something ultra vires on the part of the company qua company, or on the
part of the majority of the company, so that they are not fit persons to determine
it; but that every litigation must be in the name of the company, if the company
really desire it. Because there may be a great many wrongs committed in a
company - there may be claims against directors, there may be claims against
officers, there may be claims against debtors; there may be a variety of things
which a company may well be entitled to complain of, but which, as a matter of
good sense, they do not think it right to make the subject of litigation; and it is the
company, as a company, which has to determine whether it will make anything
that is wrong to the company a subject-matter of litigation, or whether it will take
steps itself to prevent the wrong from being done. (Emphasis added.)
In Burland v. Earle [1902] AC 83, 93, Lord Davey, when delivering the advice of
the Privy Council expressed the proposition in the following words:
It is an elementary principle of the law relating to joint stock companies that the
Court will not interfere with the internal management of companies acting within
their powers, and in fact has no jurisdiction to do so. Again, it is clear law that in
order to redress a wrong done to the company or to recover moneys or damages
alleged to be due to the company, the action should prima facie be brought by the
company itself. These cardinal principles are laid down in the well-known cases of
Foss v. Harbottle and Mozley v. Alston , and in numerous later cases which it is
unnecessary to cite. But an exception is made to the second rule, where the
persons against whom the relief is sought themselves hold and control the
majority of the shares in the company, and will not permit an action to be
brought in the name of the company. In that case the Courts allow the
shareholders complaining to bring an action in their own names. This,
however, is mere matter of procedure in order to give a remedy for a wrong
which would otherwise escape redress, and it is obvious that in such an action
the plaintiffs cannot have a larger right to relief than the company itself would
have if it were plaintiff, and cannot complain of acts which are valid if done
with the approval of the majority of the shareholders, or are capable of being
confirmed by the majority. The cases in which the minority can maintain such
an action are, therefore, confined to those in which
the acts complained of are of a fraudulent character or beyond the powers of the
company. A familiar example is where the majority are endeavouring directly or
indirectly to appropriate to themselves money, property, or advantages which
belong to the company, or in which the other shareholders are entitled to
participate, as was alleged in the case of Menier v. Hooper's Telegraph
Works [1874] LR 9 Ch. 350.
(Emphasis added.)
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[1995] 2 MLRA Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. 71

The decision of the English Court of Appeal in Wallersteiner v. Moir (No. 2) [1975]
QB 373 is regarded by leading textbook writers as the high-level watermark of the
law and procedure governing derivative actions in the sphere of company law.
Lord Denning there traced its history and scope. He said (at page 390 of the
report):
It is a fundamental principle of our law that a company is a legal person, with its
own corporate identity, separate and distinct from the directors or shareholders,
and with its own property rights and interests to which alone it is entitled. If it is
defrauded by a wrongdoer, the company itself is the one person to sue for the
damage. Such is the rule in Foss v. Harbottle [1843] 2 Hare 461. The rule is easy
enough to apply when the company is defrauded by outsiders. The company itself
is the only person who can sue. Likewise, when it is defrauded by insiders of a
minor kind, once again the company is the only person who can sue. But suppose
it is defrauded by insiders who control its affairs - by directors who hold a majority
of the shares - who then can sue for damages? Those directors are themselves the
wrongdoers. If a board meeting is held, they will not authorise the proceedings to
be taken by the company against themselves. If a general meeting is called, they
will vote down any suggestion that the company should sue them themselves. Yet
the company is the one person who is damnified. It is the one person who should
sue. In one way or another some means must be found for the company to sue.
Otherwise the law would fail in its purpose. Injustice would be done without
redress. In Foss v. Harbottle , 2 Hare 461, 491-492, Sir James Wigram VC saw the
problem and suggested a solution.
He thought that the company could sue 'in the name of some one whom the law
has appointed to be its representative.' A suit could be brought 'by individual
corporators in their private characters, and asking in such character the protection
of those rights to which in their corporate character they were entitled, ...
This suggestion found its fulfilment in the Merryweather case (The reference here is
to Atwool v. Merryweather ) which came before Sir William Page Wood VC on two
occasions: see [1864] 2 Hem. & M. 254 (sub nom. East Pant Du United Lead Mining
Co. Ltd. v. Merryweather ) and L.R. 5 Eq. 464n. It was accepted there that the
minority shareholders might file a bill asking leave to use the name of the
company: see 2 Hem. & M. 254, 259; LR 5 Eq. 467-468n. If they showed
reasonable ground for charging the directors with fraud, the Court would appoint
the minority shareholders as representatives of the company to bring proceedings
in the name of the company against the wrongdoing directors.
By that means the company would sue in its own name for the wrong done to it.
That would be, however, a circuitous course, as Lord Hatherley LC said himself,
at any rate in cases where the fraud itself could be proved on the initial application.
To avoid the circuity, Lord Hatherley LC held that the minority shareholders
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themselves could bring an action in their own names (but in truth on behalf of the
company) against the wrong-doing directors for the damage done by them to the
company, provided always that it was impossible to get the company itself to sue
them. He ordered the fraudulent directors in that case to repay the sums to the
company, be it noted, with interest: see LR 5 Eq. 469n. His decision was
emphatically approved by this Court in Menier v. Hooper's Telegraph [1874] 9 Ch.
App. 350 and Mason v. Harris [1879] 11 Ch.D. 97. The form of the action is always
'A. B. (a minority shareholder) on behalf of himself and all other shareholders of
the company' against the wrongdoing directors and the company. That form of
action was said by Lord Davey to be a 'mere matter of procedure in order to give a
remedy for a wrong which otherwise would escape redress': see Burland v. Earle
[1902] AC 83, 93. Stripped of mere procedure, the principle is that, where the
wrongdoers themselves control the company, an action can be brought on behalf
of the company by the minority shareholders on the footing that they are its
representatives to obtain redress on its behalf.
I am glad to find this principle well stated by Professor Gower in Modern Company
Law , 3rd ed. (1969), p. 587, in words which I would gratefully adopt:
Where such an action is allowed, the member is not really suing on his own behalf
nor on behalf of the members generally, but on behalf of the company itself.
Although ... he will have to frame his action as a representative one on behalf of
himself and all the members other than the wrongdoers, this gives a misleading
impression of what really occurs.
The plaintiff shareholder is not acting as a representative of the other shareholders,
but as a representative of the company.... In the United States ... this type of action
has been given the distinctive name of a 'derivative action,' recognising that its true
nature is that the individual member sues on behalf of the company to enforce
rights derived from it.
As it happens in the present case the formula has been discarded. The counterclaim
by Mr. Moir was prepared by a careful, learned and skilful member of the bar, Mr.
William Stubbs. It is not headed 'on behalf of himself and all the other
shareholders.' It is just headed 'M.J.G. Moir, plaintiff on counterclaim.' The two
companies were made parties by being added to the counterclaim. The prayer is:
'Mr. Moir counterclaims for' several declarations of wrongs done to the two
companies and orders on Dr. Wallersteiner to pay specified sums to the two
companies, and that he do pay the costs of Mr. Moir and the two companies. No
objection has been taken to that form of proceeding. No suggestion has been
made that it should be amended. Quite right.
Let it stand as it is. It is in accord with principle. (Emphasis added.)
With the first of the two passages upon which we have placed emphasis, no quarrel
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may be had. For it accurately summarises the law as it had been stated and
developed by earlier Courts whose decisions are entitled to the greatest of respect.
But with regard to the latter passage to which we have lent emphasis, we are with
great respect, unable to agree with Lord Denning that the practice there followed
by the counterclaiming defendant " accords with principle". It does not.
We think it important not to overlook the fact that in that case Counsel for Dr.
Wallersteiner did not raise any objections to Mr. Moir's failure to correctly intitule
his counterclaim: nor did he suggest an amendment. But that failure could not and,
with respect to the Master of the Rolls, did not render the form of proceeding there
adopted to be in accordance with the principles governing a derivative action.
In our judgment, the derivative action has not reached a stage where a plaintiff
may disregard its procedural elements. We emphasize that it is not permissible for
a plaintiff in a derivative action to sue in his own name, without indicating that he
is bringing the action in a representative capacity and for the benefit of the
company of which he is a shareholder. The correct position in law is that stated by
Jordan CJ (NSW) in Australian Coal & Shale Employees Federation v. Smith [1938] 38
SR (NSW) 48, 54:
Thus, if the wrongdoers control the company and successfully resist all attempts to
cause the company to sue, an individual shareholder suing on behalf of himself and
all other shareholders except the defendants may sue to remedy the wrong, joining
the company as defendant: Burland v. Earle .
See also Davis v. The Commercial Publishing Company of Sydney Ltd. [1901] 1 SR
(NSW) 37; New South Wales Wood Process Ltd. v. Gorton [1915] 15 SR (NSW) 454;
Atherton v. The Plane Creek Central Mill Co. Ltd. [1914] QSR 73.
It now becomes necessary to deal with the expression "fraud upon a minority" in
the context of the exception under discussion. Although the real meaning of the
phrase is unclear in the sense that one is unable as yet to determine its boundaries
with any precision, an examination of the authorities leaves us to conclude that the
following propositions may be taken as settled and beyond question:
(1) The expression "fraud upon the minority" is a term of art and has absolutely
nothing whatsoever to do with actual fraud or deception at common law.
(2) Lack of probity comes within the ambit of the expression. But it is not
necessary to prove dishonesty before a minority shareholder may claim relief under
the doctrine.
(3) It is sufficient for a plaintiff in an action grounded upon the doctrine to show
that those wielding majority control abused the powers vested in them in the sense
that they used or omitted to use their powers for an oblique or collateral motive or
purpose and not for the true purpose for which the power was entrusted to them
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74 Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. [1995] 2 MLRA

either by the memorandum and articles of association, by statute or the general

law.
These propositions are borne out by the following passage in the judgment of
Megarry V.C. in Eastmanco (Kilner House) Ltd. v. Greater London Council[1982] 1 All
ER 437, 445:
It was on the firmly established exception of 'fraud on a minority' that Counsel for
the applicant mainly relied. It does not seem to have yet become very clear exactly
what the word 'fraud' means in this context; but I think it is plainly wider than
fraud at common law, in the sense of Derry v. Peek [1889] 14 App Cas 337,
[1886-90] All ER Rep 1. In a valuable survey of the authorities, Templeman J
recently came to the conclusion that this head permitted the minority to sue even
though there had not been even an allegation of fraud: see Daniels v. Daniels [1978]
2 All ER 89, [1978] Ch 406. That was a case in which a husband and wife were the
two directors of a company and also the majority shareholders. They caused the
company to sell to the wife land owned by the company; and four years later she
sold the land for over 28 times what she had paid for it. The Judge refused to strike
out the statement of claim of minority shareholders in Foss v. Harbottle proceedings
against the two directors and the company.
The principle which he derived from the cases was that 'a minority shareholder
who has no other remedy may sue where directors use their powers, intentionally
or unintentionally, fraudulently or negligently, in a manner which benefits
themselves at the expense of the company' (see [1978] 2 All ER 89 at 96, [1978] Ch
406 at 414). Apart from the benefit to themselves at the company's expense, the
essence of the matter seems to be an abuse or misuse of power. 'Fraud' in the
phrase 'fraud on a minority' seems to be being used as comprising not only fraud
at common law but also fraud in the wider equitable sense of that term, as in the
equitable concept of a fraud on a power. (Emphasis added.)
It is convenient at this stage to deal with the other case law exception to the rule in
Foss v. Harbottle . It is the fifth category of case referred to by Edgar Joseph Jr. J in
Tan Guan Eng (supra) . As observed by his Lordship, the English Court of Appeal
has frowned upon the creation of yet another exception to the rule based upon the
justice of a particular case. However, the reluctance shown by the English tribunal
does not appear to be shared by Australian Courts.
In Biala Pty. Ltd. v. Mallina Holdings Ltd. (No. 2) [1993] 11 ACLC 1082, a decision
of the Supreme Court of Western Australia, Ipp J. expressed a view of the law with
which we are inclined to agree. This is what he said (at page 1102 of the report):
Equity is concerned with substance and not form, and it seems to me to be contrary
to principle to require wronged minority shareholders to bring themselves within
the boundaries of the well-recognised exceptions and to deny jurisdiction to a
 Abdul Rahim Aki
v.
[1995] 2 MLRA Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. 75

Court of equity even where an unjust or unconscionable result may otherwise

ensue.
The circumstances of modern commercial life are very different to those which
existed when Foss v. Harbottle was decided. The body of shareholders of a public
company is ordinarily far greater in number, and the controlling minds of
individual shareholders are far more difficult to identify than was the case with the
relatively small corporations that existed 150 years ago. These developments and
the complexities and sophistication of modern shareholding make it often very
difficult to bring derivative claims within the established exceptions. To the extent
that policy may be relevant in determining whether a fifth and general exception to
the rule should be recognised, I consider it to be desirable to allow a minority
shareholder to bring a derivative claim where the justice of the case clearly
demands that such a claim be brought, irrespective of whether the claim falls
within the confines of the established exceptions.
In this regard I note the recommendation of the Companies and Securities
Advisory Committee reported in the Australian Securities Commission release
issued on 2 August 1993 (CASAC 93/02), that the rule in Foss v. Harbottle be
abolished to allow shareholders and others a general right to bring derivative
actions on behalf of companies.
Accordingly I uphold the argument of the plaintiffs that the Court may allow a
derivative action by shareholders in circumstances whenever the justice of the case
so requires.
Returning to the appeal before us, we are satisfied that the learned Judicial
Commissioner failed to satisfactorily direct his mind to the correct principles of law
that governed the case before him. In his written judgment there is a statement to
the effect that the action was unsustainable because there was no case of fraud
pleaded by the appellant. What the learned Judicial Commissioner did in effect
was to equate common law fraud with the expression "fraud on a minority". In
this, he was clearly wrong. But, as we have earlier observed, the error into which
he fell was largely contributed to by the submission of Counsel for the defendants
in the Court below.
It is plain that the appellant and the Court were at cross-purposes at least to some
extent upon the nature of the claim that was being pressed. The appellant, before
he was sidetracked, based his argument on the doctrine of "fraud upon a minority".
The Court, however, looked for, and unsurprisingly did not find, any allegation of
common law fraud, supported by particulars, of a degree sufficient to displace
registered title. It was on that basis that the learned Judicial Commissioner found
for the respondents. In that respect he erred. But, as we observed at the outset, the
totality of the facts disclosed in the appellant's pleadings and the relief claimed by
him do not come within the ambit of the principle contended for so that the order
 Abdul Rahim Aki
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76 Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. [1995] 2 MLRA

of dismissal was good.

There is a final point which we must address. Counsel for the appellant submitted
that in the light of our disagreement with the reasons advanced by the learned
Judicial Commissioner, the proper order that we should make is to restore the
summons to file and direct it to be prosecuted as a writ action.
This Court is certainly empowered to do that by the provisions of O. 28 r. 8(1). But
there is a discretion vested in a Court whether to permit the conversion of
proceedings commenced by originating summons into a writ action. See, Cheow
Chew Khoon v. Abdul
Johari bin Abdul Rahman [1995] 1 MLRA 679; [1995] 1 MLJ 457; [1995] 4 CLJ
127; [1995] 1 AMR 759. Despite the forceful argument of Counsel we were left
uninclined to exercise discretion in the appellant's favour.
There are simply too many things wrong with this action as it is presently
constituted. The intitulement of the appellant as plaintiff in his personal capacity in
what purports to be a derivative action is wrong. The facts as alleged do not appear
to fall squarely within the minority shareholder's action on the ground that there
had been fraud on the minority. The relief claimed does not appear to fit the facts
alleged. In view of all these matters, we thought it best that the appellant should
start with a fresh slate. That is why we gave the appellant liberty to file a fresh
action by way of a writ.
For the reasons given, the appeal was dismissed and we made those orders which
are usually consequent upon a dismissal.
Abu Mansor bin Ali JCA:
I have had the benefit of reading the judgment in draft of my learned brother,
Gopal Sri Ram, JCA with which I am in full agreement. As he said we agree to
dismiss this appeal but for a different reason given by the learned Judicial
Commissioner who had held that the plaintiff had been unable to prove the high
degree of fraud alleged.
For myself I would like to say that because the plaintiffs themselves had not been
so clear in what they were claiming and had not brought all the parties they should
have had, this factor in a large measure, contributed to the difficulty found by the
learned Judicial Commissioner trying this case. He certainly made the best of it
and we commend him for that attempt.
No doubt, as the plaintiffs applied, we could have exercised our discretion, to
allow the plaintiffs to amend their claim and I agree with my learned brother Judge
that, there are so many flaws with the claim that we felt it would certainly be better
if the plaintiffs begin all over again and we declined their application that we remit
the case down. Whatever is the result, with the judgment of my brother Judge, the
 Abdul Rahim Aki
v.
[1995] 2 MLRA Krubong Industrial Park (melaka) Sdn. Bhd. & Ors. 77

plaintiff should, and probably a lot of others as well, now be in a better position to
begin this kind of claim which is fraught with difficulties. I hope the next round the
plaintiff will be more ready. In the meantime, we confirm the learned Judicial
Commissioner's judgment dismissing this appeal for a different reason with cost.

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